Emotion can drive investor behavior – and feelings are in overdrive following last month’s election. Across the United States, the mood ranges from a state of mourning to euphoria, depending on one’s political views.

But retirement investors are not hitting the panic button in the wake of the Nov. 8 election.

The Vanguard Group reports that mutual fund exchange activity spiked the day after the election, with about 2,500 account holders making trades. Activity is still higher than normal, but most of Vanguard’s 4 million 401(k) investors are staying put.

If anything, optimism is driving the market. For example, Fidelity Investments reports that IRA investors have turned more bullish since the election. The buy/sell ratio jumped to 1.37 last week from 1.15 in the last week of October. (A buy/sell ratio of more than 1.0 is bullish, and the 1.37 ratio indicates 37 percent more buys than sells). The S&P 500 Index has gained 2.8 percent since the election through Wednesday’s market close.

The optimism is shared by financial advisers. A post-election poll by the Financial Services Institute of more than 1,300 advisers found 56 percent expect a strong market for equities next year; 37 percent think markets will be flat and just 7 percent expect weakness.

“Investors are showing surprising confidence,” said Roger Aliaga-Díaz, a senior economist with Vanguard’s Investment Strategy Group, referring to the overall market. “We expected to see higher volatility for a while with this election result, but not the immediate positive reaction in equity markets.”

The bullish sentiment is driven by expectations of a White House aiming to reduce business regulation and willing to pursue strong economic stimulus in the form of infrastructure spending and tax cuts. The stimulus could drive deficits higher – which in turn could lead to higher interest rates and inflation.

I have argued elsewhere that the election results pose serious threats to retirement security, including repeal of the Affordable Care Act, Medicare privatization and Social Security benefit cuts.

But for retirement investors who are well-balanced between equities and fixed income, there is no reason to go on the defensive, argues John Rekenthaler, vice president of research at Morningstar.

“We all get worked up during political campaigns about the importance of the election – the intensity of the emotions people have is part of the process. That tends to build up a belief that the election outcome will change a lot of things, but history tells us that fewer things change than people expect.”

History could just be wrong about a lot of things this time – but perhaps not when it comes to investment results, which are affected by a wide array of factors beyond politics. The U.S. economy is highly integrated with the global economy, which is driven by policies outside any administration’s control.

Official interest rates are set by the Federal Reserve, and Janet Yellen’s tenure as chair of the Fed’s Board of Governors is not scheduled to end until January 2018. Rekenthaler notes that the stock market boomed under President Bill Clinton, fared poorly under George W. Bush and doubled during Barack Obama’s administration. That history runs counter to the conventional wisdom that markets struggle under Democrats and thrive under Republicans.

Higher inflation, interest rates?

We do not yet know how much stimulus the Trump administration will be able to drive through a Congress that – at least until this point – has been obsessed with deficit reduction.

Trump’s tax cuts and infrastructure spending plans would add about $6 trillion to the national debt over the coming decade, according to the independent nonprofit Committee for a Responsible Federal Budget.

This much is clear: higher spending and deficits would lead to higher interest rates, and possibly inflation. That will have implications for retirement investors – and for current retirees.

For investors, higher rates present short-term risk to the value of bonds or bond funds (the value of bonds have an inverse relationship to rates). Already, the Bloomberg Barclays U.S. Aggregate bond index has dropped 2.26 percent since the election, and yields have jumped 40.29 basis points

Investors holding bonds with maturity dates longer than seven years – or bond funds labeled “long” – have good reason to at least re-evaluate their holdings, Rekenthaler said. “It’s not an argument for getting out of fixed income, but to make sure that if you are long, you really have a good reason for taking that risk.”

Investors with well-balanced portfolios likely would be more than compensated for any short-term bond losses by rising stock prices, argues Aliaga-Díaz. “Higher yields will feel rocky on the front end, but over time, higher yields will start to bear fruit.”

Down the road, higher rates would be good for retirees, who have struggled ever since the Great Recession with near-zero interest rates that have made it impossible to earn an after-inflation return on low-risk holdings. And while higher inflation might hurt seniors’ pocketbooks, some of that would be offset by higher cost-of-living adjustments to their Social Security benefits.

The bottom line? The climate for retirement investing and retiree may be about to change, but do not let your politics – or emotions – drive you away from the fundamentals. Saving regularly and staying diversified with a balanced allocation are the key elements for success.

The rest is noise.

]]>Trading On The Floor Of The NYSE The Day After Trump Defeats Clinton In Stunning UpsetHere’s Why You Need to Start Saving for College Long Before High Schoolhttp://time.com/money/4462181/college-savings-fidelity-report/
Thu, 25 Aug 2016 10:00:38 +0000http://time.com/?post_type=money_article&p=4462181]]>

More than half of parents think they can meet their college savings goal as long as they start saving by the time their child enters ninth grade, according to a new survey out today.

Sorry, Mom and Dad, but for most of you, that’s wishful thinking.

On average, parents in the survey said they plan to pay 70% of the total cost of college. That’s up from 57% five years ago, according to Fidelity’s annual College Savings Indicator Study. But at this point most are on track to save less than a third of that amount, Fidelity says.

If parents want to pay 70% of college costs and to save the necessary amount during the four years their child is in high school, they’re looking at socking away a significant amount of money in a relatively short period of time.

Here’s a sample calculation: The average net price, including tuition and room and board, for a public four-year university in 2015 was $14,120, according to College Board’s Annual Trends in College Pricing report.

Let’s assume a family will pay half of their 70% share out of current income or loans and wants to save for the other half, about $5,000. That would mean saving $104 every month throughout the years the child is in high school, which sounds easy enough—until you remember that’s just to pay for one year. Multiple that by four to get a rough estimate of how much you’ll need for a degree, and suddenly you’re looking at saving $415 a month. Again, that would only give you enough to pay half of your 70% goal and doesn’t take into account annual cost of attendance increases, which have hovered above 3% for the past few years.

Run the same calculation for the average net price to attend a private college, and your monthly savings would need to be $193 for one year of college bills, or $770 for four years.

In sum, planning to start saving when your child is a teenager is overly optimistic, and ultimately makes it unlikely you’ll meet your goal.

All the survey findings weren’t as discouraging, though.

Seventy-two percent of parents have started saving, up from 58% in 2007. And they reported saving a median of $3,000 last year, twice as much as they reported saving in Fidelity’s first survey on the topic 10 years ago. More families also know about and use 529 plans—tax-advantaged investment plans for college savings—than in previous years.

The results reiterate the importance of making a specific plan to save for college. Those with a plan have saved significantly more than those without ($46,800 vs. $19,000), and almost seven in 10 families with a plan have started talking to their children about how they’ll pay for college.

Brand new parents can learn from those with older kids. When parents with children in the 10th grade and higher were asked what they wish they’d done a decade earlier to better prepare for college costs, almost a quarter said they’d wished they’d opened a 529 account sooner and treated saving for college like paying a bill. And more than half of parents said that looking back, they could have managed to put away more each month toward college bills, with 45% saying they could have saved an additional $100 or more a month.

“We’re talking about real money in that situation,” says Keith Bernhardt, vice president of college planning at Fidelity. “A hundred dollars a month over 18 years, that adds up.” Indeed, the report estimates it would add more than $38,000 to a college fund.

It appears that parents’ own experiences with relying on student loans to finance their education is making them more conscious of the need to save for their children, Bernhardt says. Nearly 85% of parents who graduated with student loan debt said that’s motivating them to save more for their kids’ college degree.

The survey covers parents who earn more than $30,000 and say their children are expected to go to college, so the statistics on the share of families saving and how much they’re saved is higher than it would be if it included all parents of children under the age of 18.

The Boston investment giant — long known for its stable of star portfolio managers like the iconic Peter Lynch — will re-brand its line of benchmark-tracking funds and sell them outside its own distribution platform for the first time, a spokesman said Friday.

Fidelity’s “Spartan” index funds are currently available through its own brokerage and the thousands of 401(k) plans Fidelity administers. Starting in June the funds will simply be known as “Fidelity” funds and become available through other channels, such as competing discount brokerages and retirement plans not overseen by Fidelity.

The funds, which have been around for more than 25 years, have $200 billion in assets, which Fidelity says makes it the second largest index fund manager in the industry. Still the company has always been known for its active funds, and didn’t back away from that Friday. “We remain strong believers in the power of active management and the value it can provide our customers,” said the spokesman in an email.

Still the move comes as the investment management landscape has been shifting away from that position in recent years. Academic studies have shown how difficult it is from active managers to beat the market, leading investors to shift investment dollars to index funds and ETFs.

Meanwhile, so-called robo-advisers, which use computer algorithms to help investors pick a suitable portfolio of stocks and bond index funds, have been winning fans with young investors. Fidelity began testing Fidelity Go — it’s own robo service — earlier this year.

While Fidelity’s index funds are less-well-known than those of its chief rival Vanguard, they are competitive on price. For investors with $10,000 to sock away, the $32 billion Fidelity Spartan Total Market Index Fund (FSTVX) charges investors fees amounting to only 0.05% of their investment balance each year, the same as the equivalent share class for the Vanguard Total Stocks Market Index fund (VTSAX).

For anyone saving for retirement in a 401(k) or IRA, this past quarter delivered an important lesson in the value of shutting out daily market news and staying the course.

If you’ll remember, the year got off to a rough start, with the stock market dropping 10%. But by mid-February stocks had rebounded, and since then the market has made back all the ground it lost early in the year. Anyone who held tight through the volatility or, even better, kept contributing to their 401(k) on a regular basis finished the quarter with gains.

Not everyone held on, of course, and some investors undoubtedly sold stocks at temporarily depressed prices. As a result, the average retirement plan balance fell modestly. At the end of March, the typical 401(k) held $87,300, according to new data from Fidelity, which is down slightly from $87,900 at year-end and off 4.9% from $91,800 a year earlier. IRAs tell a similar story—the average balance stood at $89,300, vs $90,100 at year-end and $94,100 a year earlier.

But 401(k) savers who have contributed continuously for least 10 years enjoyed far better results, probably reflecting the greater calm that comes from experience. In short, they have seen this kind of volatility before and are more comfortable riding it out for the long term. It’s a state of mind that younger investors would benefit from as well. Among these seasoned savers, the average 401(k) balance rose 2% to $240,700 over the past 12 months.

The numbers of savers with both a 401(k) plan and an IRA jumped 7% from a year ago. This probably reflects larger numbers of baby boomers hitting retirement age and rolling over some of their assets into an IRA for greater flexibility. The average combined balance for those with both types of accounts fell 2% to $260,900, Fidelity found.

Financial planners generally advise saving 12% to 15% of earnings, and the typical 401(k) plan saver is measuring up well, Fidelity reports. Counting employee and employer contributions from a match or profit sharing, the savings rate of plan participants hit a record 12.7% in the first quarter.

Calculator: [time-calcxml id=sav01]

Saving does not have to be difficult. Start by contributing enough to capture the full company match and then sign up to automatically escalate savings by 1 percentage point a year until you have hit 15%. To keep things simple, funnel all your savings into a target-date mutual fund for age-appropriate asset allocation and diversification.

]]>140601_Money_Gen_Investing_MarketWhat You Need to Do About Money in Your 20shttp://time.com/money/4286466/what-you-need-to-do-about-money-in-your-20s/
Wed, 13 Apr 2016 20:08:22 +0000http://time.com/?post_type=money_article&p=4286466]]>

What do you need to do about money when you’re in your twenties?

For starters, relax. Everything will probably be okay. But here are the basics:

Live cheaply. Doing this will help you afford to save and invest. Sacrifice some freedom and get a roommate.

Start saving. When you’re starting out, try to tuck away a month’s worth of expenses in a savings account in case of an emergency. Even $25 or $50 a paycheck is better than nothing. Once you hit a month’s worth of expenses, keep going. You want some cushion in case you lose your job or want to change careers.

Start investing. The best way to do this is through your company’s 401(k). Put enough away to get your employer’s match—you don’t want to lose out on that free money. If your job doesn’t offer a 401(k), open a Roth IRA.

Few employees object to foosball tables and free snacks in the office. But for prospective recruits burdened by student loans, some companies are introducing a perk that may be a stronger draw.

Fidelity announced Tuesday that full-time employees at the manager level or below will be eligible to receive $2,000 a year paid toward their student loan balance, for a total of up to $10,000, the Boston Globe reported.

The benefit will affect nearly 5,000 Fidelity employees, the company said. It will automatically deliver the payments using technology developed by California-based Tuition.io Inc., a student loan management company that will automatically direct payments to the employee’s loan provider.

There’s no doubt the benefit will appeal to many recruits. The average student debt in the United States has increased to about $29,000—about a 60% jump from about $18,000 in 2007, according to the Department of Education. In fact, a July 2015 survey from IonTuition found that about half of the student borrowers who were interviewed would prefer that their employer help pay off their loans than contribute to a health care or 401(k) retirement plan.

As the job market tightens, loan repayment offers may be a way for companies to compete for and retain millennial workers. Indeed, Fidelity is not the only company that’s recently announced a plan to help employees pay back their loans: Here are some other companies that help out with student loan repayments:

Starting this summer, auditing and consulting firm PricewaterhouseCoopers will give employees $100 a month (amounting to $1,200 each year) to help pay down student loans. The company’s offer is good for up to six years. That’s a big draw for the company, which recruits about 11,000 new employees from college campuses every year.

Startup lenders CommonBond and LendEDU both pledge to pay off your entire student loan balance, regardless of how much debt you have, if you’re an employee. Common Bond will provide $100 a month and LendEDU $200 a month until your debt is settled. Unfortunately, the odds of being an employee at either company are slim: Common Bond has less than 100 employees and LendEDU has just six.

Natixis Global Asset Management, the Boston-based division of French investment bank Natixis, rewards loyalty with $5,000 put toward employees’ student loan balance after their five-year work anniversary. They also receive $1,000 a year for the next five years.

This legalized brothel even offers assistance for employees who need pay off student loans. Nevada’s Moonlite Bunny Ranch in Nevada will match their student loan payments 100% for two months, up to the amount they make as prostitutes at the ranch. When you consider that employees reportedly make about $3,000 a week at the brothel, the program could work out to be a lucrative offer.

Calculator: [time-calcxml id=det10]

The bad news is that employers offering student loan repayment programs are currently in the minority: Only 3% of companies help workers pay down student debt, according to the Society for Human Resource Management.

]]>http://time.com/money/4261054/employee-student-loan-repayment-programs/feed/0160316_CAR_StudentLoanPayoffsDid You Freak Out About the Stock Market Last Month? So Did Everyone Elsehttp://time.com/money/4206537/everyone-freaked-out-about-the-stock-market-last-month/
http://time.com/money/4206537/everyone-freaked-out-about-the-stock-market-last-month/#respondThu, 04 Feb 2016 11:00:55 +0000http://time.com/?post_type=money_article&p=4206537]]>

Did you get a queasy feeling when the Dow suddenly plunged last month? So did the rest of America. Fidelity, the nation’s largest 401(k) provider, said Wednesday that 6 million people reached out with questions about their accounts on Jan. 4, when the market began 2016 with a 300-point drop.

In fact, the inquiries at Fidelity’s phone and online help centers on Jan. 4 were the “highest since the downturn” in 2007 and 2008 and remained at elevated levels during much of January, says Fidelity retirement researcher Jeanne Thompson. On a typical day Fidelity receives about 4 million questions from customers with retirement accounts.

The good news, Thompson says, is that by and large investors were better prepared for January’s slide than they were in the wake of the financial crisis. Of course, many of them now have the experience of having lived through that larger, steeper downturn. But the nation’s retirement savings infrastructure has also improved. In particular, target-date funds, which offer investors an age-appropriate mix of stocks and bonds, were just coming into vogue in 2008. Today, they are standard fare in the 401(k) universe; according to Fidelity’s report, two-thirds of account holders have at least some money in a target-date fund.

Investment vehicles that help investors ride out the rough times can make a big difference. The minority of Fidelity investors who bailed out of stocks in late 2008 and didn’t come back have seen returns far lag those who stuck with equities through the downturn. On average, their portfolios have returned about 74% over the past seven years, compared with returns of nearly 150% for those who stayed the course, the report noted.

Of course, checking their account balances isn’t the only way anxious Americans looked to secure their retirement last month. They also bought 635 million Powerball tickets. The time on the phone with Fidelity was probably better spent.

Fidelity Contrafund isn’t contrarian in the way that you might think. Contrarians are fearless and independent, buying stocks the herd hates. But who on Wall Street dislikes Berkshire Hathaway, Contrafund’s largest holding? Or Apple, its second-largest position?

Yet there’s one counterintuitive thing Will Danoff, the fund’s skipper for 24 years, has accomplished. While big funds often lag, this $110.7 billion portfolio—now larger than Fidelity Magellan was at its peak—has still beaten two-thirds of its peers over the past five years. How much longer can Danoff keep it up?

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How It’s Different

Morningstar classifies this portfolio as a large growth stock fund. But Contrafund has some latitude, as exemplified by its big stake (4.7% of assets) in Berkshire Hathaway. The insurance-heavy conglomerate run by Warren Buffett isn’t exactly a high-flying growth stock. Neither is another holding, Wells Fargo, the conservatively run megabank.

Fear not. While Contrafund has an outsize stake in value-oriented financials, it doesn’t stray too far afield. Among its other top holdings are growth stalwarts Facebook and Biogen, and the fund bought Alibaba on its initial public offering. Tech, which is the biggest sector for growth portfolios, represents about 24% of the fund, just a tad below the 25% average for large growth funds.

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Danoff’s Defensive Moves

What distinguishes Danoff as a manager? He does well when the market doesn’t, and that’s helped the fund over time. Contrafund outperformed large growth funds in the two major bear markets of this century, which has allowed the fund to clobber its peers by 1.6 percentage points a year over the past decade.

Still, “for a contrarian, the most difficult moment is investing in a market that has gone well,” says Jim Lowell, editor of Fidelity Investor. Sure enough, Contrafund has been about average over the past three years. The fund has made some good defensive moves, downshifting from an 8.6% stake in energy in 2011 to 2% now. But don’t expect to see Contrafund among the top gainers when the market soars, Lowell says.

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A Question of Size

One big elephant in the room is Contrafund’s elephantine size: It is the second-largest actively managed stock portfolio, behind only American Funds Growth Fund of America. Plus, Danoff has led this fund for nearly a quarter-century, when the average manager tenure is 5½ years.

Fidelity does have a massive staff of analysts. And Danoff “doesn’t exhibit any signs of weariness or burnout,” says Lowell. But there’s no denying this fund is enormous, which means buying small, fast-growing companies won’t do it much good. If you’re okay with just blue-chip names, this is “a fund with a well-proven manager, strong risk-adjusted returns, and low expenses,” says Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.

(Note: Losses are from March 24, 2000, to Oct. 9, 2002, and Oct. 9, 2007, to March 9, 2009. Source: Morningstar)

Some good news on the retirement front: The average 401(k) account balance reached a record high and workers are stashing away more in their plans, according to Fidelity, the largest retirement savings plan provider.

The average 401(k) held $91,800 in the first quarter of this year, up 3.6% from a year ago. Meanwhile, a record 23% of employees in Fidelity plans hiked their 401(k) contributions in the past year. The average savings rate, including both employer and employee contributions, climbed to 12.5%.

For employees in a 401(k) plan for 10 or more years, the average balance was a hefty $251,600, up 12% year over year. For those with both a 401(k) and IRA at Fidelity, the average combined balance rose 2.2% to $267,200.

Impressive, but it may not be enough. The Fidelity report doesn’t spell it out, but most of these gains are owed to the bull market, which will eventually fade. Meanwhile, the typical employee is still far behind in retirement saving.

That may seem counter-intuitive, given those lofty balances, but the averages are skewed upwards by high-income savers. The typical working household nearing retirement with a 401(k) and an IRA has a median $111,000 combined, which would yield less than $400 a month in retirement, according to a recent report by the Boston College’s Center for Retirement Research.

For households ages 55 to 64 earning $40,000 to $60,000 a year, the median balance in 401(k) and IRA accounts is just $53,000. For the same age group earning $138,000 or more, the median account is $452,000, according to CRR.

Financial planners recommend saving 10% to 15% of your income annually, starting in your 20s. The goal: amass 10 to 12 times your final annual earnings in order to have enough to maintain your standard of living in retirement. So if you make $60,000 a year, you should accumulate $600,000 to $720,000 by the time you retire.

That’s a tall order, and you could certainly live on less—many people do. Still, to have a shot at affording a decent retirement, you need to save consistently over the long term. And to do that, you need a plan, which gives a huge advantage to workers who have a 401(k).

According to the Employee Benefit Research Institute’s latest Retirement Confidence survey, those with 401(k) plans are much more optimistic about their retirement prospects: 71% of those with a plan are very or somewhat confident they will live comfortably in retirement, vs. just 33% of those who are not, EBRI found. Similarly, the CRR report shows that 68% of older households with the highest median retirement account balances had a 401(k) vs. just 22% for the group with the least savings.

Employers could be doing more to encourage that kind of savings behavior. Just one-third of 401(k) plans automatically enroll new workers but only 13% of companies automatically increase contribution rates each year, according to Fidelity.

To see if you’re on track, run your numbers on an online retirement savings calculator, such as those offered by T. Rowe Price or Vanguard. Get MONEY’s advice on how to make the most of your 401(k) at every stage of your life here. If you don’t have a 401(k), here’s what you need to know about IRAs.